Extending the Eligibility for the Disability Tax Credit to Fight Poverty

The DTC was originally designed as a tax credit. It recognizes that persons with severe and prolonged impairments bear non-discretionary costs that reduce their taxable capacity, and its strict functional test was calibrated to identify that population, not the broader population of people who are disabled in some meaningful sense. That design logic held so long as the DTC was only doing a tax job. It became more complicated when the DTC was made the eligibility gateway to the Canada Disability Benefit (CDB), an income support targeted at low-income working-age Canadians with disabilities.

Once the DTC controlled access to an income-support program, whether it applies the right definition of disability is no longer only a question of tax design: it is a question of whether the right population is being reached by an anti-poverty program. This expansion in the role of the DTC is the focus of this report: it asks whether the DTC eligibility criteria are capturing the right population and, if not, how can it be expanded and what would that expansion look like.

This report is part of the second phase of the Broken Links project, prepared for the Canada Tax Observatory. It follows the first report which reviewed the existing evidence on the DTC and mapped the chain of access from eligibility to benefit receipt. Where the first phase documented how the current system works and where the links break down, this report turns to a forward-looking, quantitative question: what would change for access, cost, and poverty — if eligibility for the DTC were extended to, or informed by, the disability determinations that other programs already make?